There are many reasons why the overseas property investment market has mushroomed over the last decade, from easier access to many areas of the world to a prosperous worldwide economy but the internet has played a major part in the growth of this investment sector.
Information has never been more accessible than it is today, whether we are talking about property prices in Brazil or the building of the latest airport in Dubai. However, while the internet and many other factors have seen more and more property investors look away from their domestic property markets it has opened up a new arena for the fraudsters, scams and dishonest property developers.
There are many risks associated with investing overseas but if you do your homework and do not try to cut corners then there is a still a very good chance that you could make some serious money, if you choose the right area.
Some of the risks associated with overseas investment include :-
No matter how many books you read, how many forums you join or how many experts you speak to, you cannot beat the power of local knowledge. Just a short walk around an area can open your eyes to a whole host of events and situations as well as giving you a general feel for the area. You may spot some shops which are closing down (is the economy struggling?), you may see a number of new developments beginning to spring up (is the area about to take off?). Alternatively, you may feel that the area is not close enough to major catchment areas of maybe there are other local issues you do not feel at ease with.
Powers of Attorney
Powers of Attorney (PoA) are a necessary evil if you are dealing in overseas property markets and are not able to be there to sign paperwork, arrange finance, etc. However, before you sign away your life with a PoA you need to know who you are dealing with, are they trustworthy, and what is their record in the property market?
Thankfully the internet will give you a good start when looking at appointing a PoA because bad news travels very quickly in cyberspace so if your potential PoA has a chequered past you will soon know about it. It is vital that you use the internet to check out who you are dealing with, whether this is legal representation, estate agents or property developers to name but a few.
While currency risk is not something which readily crops up on many property forums it is a risk as currency markets are now more volatile that they ever have been in the past. Take the exchange rate of the dollar against sterling which has dropped from $2 to the pound only a few years ago to somewhere near $1.70. While this may not be something which many property investors take into consideration, that is a 15% variation before you have even started to look at the return from your property in local currency.
If you are looking to acquire a property to rent out for most of the year and maybe take a short break yourself a couple of times a year then the chances are that you will need to appoint a letting agent to look after the property in your absence. Obviously they will take a fee for collecting rent, managing the property and any repairs which need to be done are likely to be at your expense. Even thought the fees involved may not be enormous, they are chipping away at your income and can affect any financing arrangements which you may have on the property.
While the issue of taxation is never far away from any investment market these days, it can get rather tricky with overseas property investments unless you take professional advice to ensure that you abide by the local laws. Many people automatically assume that if you are investing in the European market and you live in Europe all taxation issues will be broadly similar, which is certainly not the case. You may also miss out on early flagging of potential taxation changes which may affect you unless you have a reliable local agent representing your interests.
Laws and regulations
If you take a look at any property forum on the internet you will see a number of posts regarding local laws and regulations with regards to property, finance and overseas investors. Pick any subject under this umbrella and you will immediately spot the number of conflicting views and advice which is given. Can you imagine how alarming this could be if you live outside the area in which your investment is located and see this confusion. This is even more reason why investors need to ensure that have people they can trust local to their property who will advise them of changes or any rumours – to be forewarned is to be forearmed.
Aside from any potential currency risk there is the chance of interest rates on local finance moving at odds with the rate in your domestic market. This can mean your mortgage payments could be changing on a regular basis and are likely to affect you cash flow projections for the investment. There are even many markets, such as Germany, where local finance for overseas investors is still very limited and very under developed.
While it would be wrong to attack the attractions of overseas property investment markets there is a need to go into these ventures with your eyes wide open. It is very dangerous to assume anything in these situations as each and every country in the world has its own little quirks which could impact on your investments.
It is therefore vital that you employ the services of a local representative to look after your investments and ensure that you are kept abreast of any moves or changes which may impact on your property. However, that representative is likely to be vital to you in the long run and you need to do your homework to get the best you can afford.
Cutting costs on an overseas investment can often be commercial suicide and you could pay a very heavy price for this.